0:00

Something bad like this

0:02

does not always need to

0:04

translate into a financial stability

0:07

credit events like a one shock

0:09

limit thing. But however, it could

0:11

be a slow moving train wreck

0:14

in the sense that it could

0:16

be, it just means that the

0:19

resilience of the economy and consumption

0:21

would be much lower because people

0:23

won't be able to borrow. I

0:26

think 30% adjustment and S&P

0:28

500 is not out of

0:31

the realm of possibility. Welcome

0:33

to Thawful Money. I'm its

0:35

founder and your host, Adam

0:38

Taggart. Today's guest had one

0:40

of the best track records

0:42

last year in forecasting key

0:44

economic indicators like the rates

0:46

of inflation and unemployment. Well,

0:48

now that we've got a

0:50

new administration in place, one

0:52

aggressively deploying disruptive economic policy

0:55

changes, where does she see

0:57

the key indicators headed from

0:59

here? To find out, we've

1:01

got the good fortune to

1:03

speak today with Dr. Anna

1:05

Wong, Chief U.S. Economist for

1:07

Bloomberg Economics. Prior to her

1:09

current role, Anna also worked at

1:11

the Federal Reserve Board, the White

1:13

House Council of Economics Advisors, and

1:15

the U.S. Treasury. Anna, thanks so

1:17

much for joining us for joining us

1:19

today. Thank you. I'm so looking

1:21

forward to this conversation. You could not

1:24

be a better guest for a more

1:26

topical topic, which is tariffs. And the

1:28

day this is recorded, being recorded is

1:30

the day before Liberation Day. So we're

1:33

recording this on April Fool's Day. The

1:35

day is going to launch is going

1:37

to be the day after Liberation Day, where

1:39

people are going to have an awful lot

1:41

of questions about all this. So again, like

1:44

I said, you're the perfect person for this

1:46

moment in time. So we're going to get

1:48

to tariffs in just a quick second, but

1:50

very quickly, if we can, Anna, let's just,

1:52

since it's been a little while since you've

1:54

been on the channel, let's just do a

1:57

quick refresh and sort of how you see

1:59

the world right now. What's your current assessment?

2:01

the global economy and financial markets? I

2:03

think that the sentiment data,

2:05

so consumer sentiment, small business

2:08

sentiment, they are all coming

2:10

off from a honeymoon period,

2:12

which is actually perfectly forecastable.

2:14

If you look at past,

2:16

you know, presidential elections, the

2:18

improvement in consumer sentiment typically

2:20

last... five to six months

2:23

and so we are basically

2:25

right on time for the

2:27

salary of the sentiment. But

2:29

I think what makes the

2:31

current moment more tricky or

2:33

nebulous than other transition moments

2:35

from one administration to another

2:38

is that we are also

2:40

coming off of four years

2:42

of extreme fiscal stimulus and

2:44

this new administration not only

2:46

are announcing new ways to

2:48

downsize the government which has

2:51

you know exacerbated a lot

2:53

of these souring of the

2:55

sentiment that was going to

2:57

happen anyway but on top

2:59

of that there were these

3:01

you know stealth fiscal stimulus

3:03

that's been boosting the economy

3:06

in the past two years

3:08

that are just expiring and

3:10

go fading away and in

3:12

fact even if Trump were

3:14

to do nothing many of

3:16

these you know, expiring fiscal

3:18

stimulus, we're going to be

3:21

dampening economic growth. So basically

3:23

the economy, U.S. economy is

3:25

experiencing the double whammy of

3:27

new administration policies that's accelerating

3:29

underlying vulnerabilities, vulnerabilities of the

3:31

economy. And of course the

3:33

third... whammy is that the

3:36

world economy will be affected

3:38

by all this and the

3:40

uncertainty of it all is

3:42

going to I think bring

3:44

down you know slow down

3:46

economic growth so all together

3:49

it seems clear that at

3:51

least in the next three

3:53

or six months, the outlook

3:55

is not bright. Okay, outlook

3:57

not bright. So this issue

3:59

of a downshifting of the

4:01

fiscal stimulus, as well as

4:04

a removal or ending of

4:06

the stealth part of that

4:08

fiscal stimulus, it's a big

4:10

deal. It's something that a

4:12

couple folks who have proceeded

4:14

you on this channel have

4:16

warned about most notably. I'd

4:19

probably put Michael Howl and

4:21

Darius Dale at the top

4:23

of the list. I'm sure

4:25

you're familiar with their work.

4:27

At our recent conference for

4:29

thoughtful money, Michael walked in

4:32

detail through what he called

4:34

the not QE QE and

4:36

not yield control, yield control

4:38

control that he believes that

4:40

the calculates that the Fed

4:42

and the Treasury were engaged

4:44

in over the past couple

4:47

years. And as you said,

4:49

showed that that is really

4:51

ending now here. And you

4:53

know, Michael's Michael's lens is

4:55

all about capital flows and

4:57

when capital flows start diminishing

4:59

and then perhaps even shrinking

5:02

you know that's when he

5:04

starts to get real worried

5:06

about markets sounds economies economic

5:08

growth and markets sounds like

5:10

you are seeing through a

5:12

similar lens. All right so

5:14

we'll start with this not

5:17

bright outlook given all the

5:19

reasons that you mentioned that

5:21

is kind of the big

5:23

trend that's going on here.

5:25

Let's talk for a moment

5:27

about specifically tariffs because that's

5:30

creating a lot of the

5:32

immediate uncertainty that's going on

5:34

right now. We have this

5:36

whole liberation day this week

5:38

as I talked about in

5:40

the intro. I guess first

5:42

off, Anna, you know, leading

5:45

up to the end of

5:47

last year, you and your

5:49

team there at Bloomberg Economics

5:51

had your forecasts and whatnot.

5:53

How do these Trump tariffs

5:55

sort of the the the

5:57

scope and the scale of

6:00

them? How have they impacted

6:02

your economic outlook, if at

6:04

all, now that we're in

6:06

2025? So first of all,

6:08

you know, Adam, there are

6:10

many economic forces that's hitting

6:13

the economy at the same

6:15

time. Terrorists have been receiving

6:17

the most amount of attention

6:19

in news and how people

6:21

absorb news. The tariffs actually

6:23

comprise of only about 10%

6:25

of total U.S. consumption. So

6:28

you can certainly tariffs and

6:30

the uncertainty of tariffs. is

6:32

going to be dampening growth

6:34

but on the other hand

6:36

what's what's also driving a

6:38

lot of what we're seeing

6:40

are number one the student

6:43

debt the aftermath of the

6:45

grace period for you know

6:47

four or five years grace

6:49

period of student loan forbearance

6:51

and the you know plunge

6:53

and credit scores that's going

6:55

to be affecting nine to

6:58

ten million borrowers and second

7:00

the fiscal stuff that's happening,

7:02

which is also a pretty

7:04

sizable shock to the economy.

7:06

So, but on the tariff

7:08

front, I think what we

7:11

have seen so far is

7:13

just a temporary boost in

7:15

production and ISM manufacturing, or

7:17

just generally manufacturing trade logistic

7:19

sector. So we haven't actually

7:21

seen the negative impact. of

7:23

tariffs in 2018 and 2019.

7:26

This was of several magnitude

7:28

bigger. So this this front

7:30

running in anticipation of the

7:32

liberation day tariffs is one

7:34

of the biggest front running

7:36

we have seen. I mean,

7:38

compared to the front running

7:41

of the tariffs in 2018

7:43

and 2019, this was of

7:45

several magnitude bigger. back in

7:47

the first Trump administration, it

7:49

was barely, you can barely

7:51

detect this firm's front running,

7:53

but right now we have

7:56

seen imports surged in the

7:58

last four months and And

8:00

so inventory also has been increasing.

8:03

So what this means is that

8:05

the hard data we have right

8:08

now is showing production has been

8:10

pretty strong manufacturing payrolls in the

8:12

last February jobs report was a

8:15

very surprising gains in job gains.

8:17

And also in this Friday, jobs

8:20

report. You know, we're going to

8:22

get the March jobs report this

8:24

Friday, and we are expecting that

8:27

the trade and logistics sector is

8:29

going to have a very strong

8:32

showing of hiring. And so these

8:34

are all short-term positive effect of

8:36

a tariff, but the question is,

8:39

what happens when the tariffs are

8:41

actually implemented? And these front-running activity

8:44

stopped. Right. So given the size

8:46

of the run up of this

8:48

front running on inventories, on production,

8:51

on imports, what all these means

8:53

is that it's potentially what April

8:55

2nd means is after these massive

8:58

tariffs are immediately in effect, no

9:00

more front running. So firms are

9:03

just gonna, you know, hang on

9:05

to their existing inventory, barely adding

9:07

to new orders. This is why.

9:10

When you look at these forward

9:12

looking new orders index indices now,

9:15

they're plunging because firms have already

9:17

front ran for four months and

9:19

they probably are foreseeing that they

9:22

have enough inventory until June. And

9:24

so, so I think if we

9:27

I have to separate the impact

9:29

of terrorists into three phases, I

9:31

will, I will do so and

9:34

I will separate the impact of

9:36

tariffs. Actually, how this, Adam. Let

9:39

me rephrase. I'm going to separate

9:41

the impact of tariffs into four

9:43

phases. The first phase is in

9:46

anticipation. of the tariffs and this

9:48

is basically what we have since

9:51

November and up to April 1st.

9:53

And what happened is there are

9:55

a lot of temporary positive effect

9:58

showing up in payrolls, manufacturing production

10:00

imports. Phase two happens after the

10:02

tariffs are imposed. And so suddenly

10:05

you have this freeze of activity.

10:07

This is what I'm forecasting because

10:10

the... build up of the inventories

10:12

from four months, have enough to

10:14

last firms for, you know, three

10:17

or four months. And then in

10:19

these three or four months, the

10:22

firms are going to see whether

10:24

they're going to be hoping that

10:26

President Trump would be negotiating with

10:29

countries and lowering some tariffs and

10:31

giving them more clarity that these

10:34

tariffs are not going to stay.

10:36

And then after the three or

10:38

four months period, where the firms

10:41

are kind of in this subsistence

10:43

mode, then you get into the

10:46

third phase, which is, okay, now

10:48

what are they going to do?

10:50

Are they going to, judging at

10:53

the demand situation of the economy,

10:55

are they going to build back

10:58

up now their inventories, or are

11:00

they have demand plunged so much

11:02

that they decided a recession is

11:05

here, and that they are just

11:07

going to be sticking with you

11:09

know, their low inventory regime. And

11:12

also they would be grappling with

11:14

the issue of, well, if they're

11:17

going to buy more, they would

11:19

need to think about, are they

11:21

going to pass through these prices?

11:24

Because in the phase two where

11:26

it's like subsistence mode, they won't

11:29

be pricing through tariffs just yet

11:31

because they have, these goods they

11:33

have in the inventory are bought

11:36

from before the tariffs, right? So

11:38

they can go on for three

11:41

or four months without passing prices.

11:43

But the point where they really

11:45

need to think about are they

11:48

going to build up tariffs, are

11:50

they build up the inventory again,

11:53

are they going to... to pass

11:55

the prices, that's the phase three,

11:57

right? And that entirely depends on

12:00

the demand condition of the economy.

12:02

And so that would put us

12:05

in about the third quarter of

12:07

this year, closer to fourth quarter,

12:09

and that actually will be a

12:12

critical moment for the economy because

12:14

it will be clear basically around

12:16

in the third quarter of this

12:19

year, whether the pass-through, whether inflation

12:21

is about to rise because many

12:24

forms are able to pass through

12:26

these prices. If they are able

12:28

to pass through these prices, it

12:31

would suggest that demand conditions are

12:33

actually not very weak. I mean,

12:36

I think the only macro circumstance

12:38

where we will see economy-wide pass-through

12:40

into consumer prices is if the

12:43

economy did not tank and the

12:45

stock market is still doing really

12:48

well. Well, in that case, inflation

12:50

will rise and then the Fed

12:52

will not cut at all by

12:55

the end of this year. So

12:57

that's one. one path of where

13:00

you clarity will reveal itself by

13:02

the third quarter. But on the

13:04

other hand, if the other path

13:07

is that firms can't pass through

13:09

these tariffs in the third quarter,

13:12

it suggests that the economy is

13:14

tanking and all these fiscal negative

13:16

fiscal impulses from those layoffs and

13:19

grants cutting are finally one of

13:21

these court cases and they're able

13:23

to implement these and these federal

13:26

workers who have been laid off,

13:28

finally roll off the federal payrolls.

13:31

We're going to see unemployment rate

13:33

rise briskly in the second half

13:35

in the third quarter and the

13:38

fourth quarter. Then in that case,

13:40

there was the limited pass-through in

13:43

inflation and also the Fed might

13:45

be cutting a couple of times

13:47

at the end of this year.

13:50

But regardless, Adam, there's, you know,

13:52

there's a lot of uncertainty about

13:55

how inflation will behave in response

13:57

to these tariffs, but there's... One

13:59

thing that's pretty predictable is that

14:02

the stock market will not do

14:04

well in either path that I

14:07

laid out. In one path, firms

14:09

cannot pass through the price increase,

14:11

so they're taking a margin hit,

14:14

so obviously earnings will take a

14:16

hit, so stock prices will suffer.

14:19

In the other path, they are

14:21

able to pass through these prices.

14:23

However, the Fed will start not

14:26

cutting rates, in fact, they would

14:28

even have to hike. around the

14:30

time of the year because firms

14:33

are able to pass through the

14:35

prices. So stock market will also

14:38

pick. So in either way, the

14:40

stock mark, it's pretty clear what

14:42

directions stock market is heading. All

14:45

right, super fascinating. So I was

14:47

going to ask you there a

14:50

little bit. I'm getting a little

14:52

bit lost on with the step

14:54

four is, but I kind of

14:57

get the step four now. It's

14:59

stock market's not going to do

15:02

well. And it's not going to

15:04

do well because at the end

15:06

of step three. We'll wait to

15:09

see what happens in terms of

15:11

what they're going to do with

15:14

pricing in the tariffs. If they

15:16

can price them in, that's bad

15:18

for the markets for the reasons

15:21

you mentioned. If they can't price

15:23

them in, that's bad for the

15:25

markets because the economy is rolling

15:28

over. Yeah. Okay. All right. Anna,

15:30

that's the perfect answer. Super specific,

15:33

very logical, very actionable for people

15:35

that agree with what you think

15:37

might happen there. All right, so

15:40

so right now, even though even

15:42

though people have been thinking of

15:45

tariff says a negative thing because

15:47

they're creating the stock market uncertainty

15:49

right now, you're basically saying like,

15:52

hey, this is like the honeymoon

15:54

period for tariffs. We've been front

15:57

running. All these orders have been

15:59

coming into America. That's probably been,

16:01

you know, pulling future demand into

16:04

Q1. So Q1 is going to

16:06

look pretty good. But then Q2,

16:09

which is really where we are

16:11

right now starting this week, we

16:13

get into the freeze. Right? And

16:16

it's going to, we're going to

16:18

see what happens with the negotiations,

16:21

how long these are going to

16:23

be. Companies are going to be

16:25

just subsisting off of the inventory

16:28

stockpiles that they built up here.

16:30

Presumably that's not going to make

16:32

economic growth look super spectacular in

16:35

Q2. But again, I think folks

16:37

are probably willing to give it

16:40

a buy depending upon what what

16:42

phase three looks like when we

16:44

get there we won't know so

16:47

we'll be tracking this stuff closely

16:49

and I will be and hopefully

16:52

many of the viewers here will

16:54

be reading your work very closely

16:56

Anna as you track this for

16:59

us in real time. Okay, so

17:01

that's super useful. Now you mentioned.

17:04

There were kind of three big

17:06

things on your mind. One was

17:08

the, let's say the disinflationary impact

17:11

of the downshifting and the fiscal

17:13

stimulus. And it sounds like you

17:16

lump a lot of things into

17:18

that, you know, doges in there,

17:20

a lot of other things that

17:23

the government is up to right

17:25

now. The second you mentioned. were

17:28

the student loans and real quick

17:30

I just want to make sure

17:32

I wrote down that the right

17:35

number about how many borrowers that

17:37

have loans out right now outstanding

17:39

borrowers yeah around around I believe

17:42

between 30 to 40 million half

17:44

student loans but of that the

17:47

New York Fed expects about between

17:49

nine to 10 million will see

17:51

will be they are the ones

17:54

who will be experiencing a credit

17:56

score drop because they have been

17:59

delinquent on their loans for over

18:01

90 days. Okay, so 10 million

18:03

that fall into the potentially we

18:06

would expect it to fall into

18:08

potentially the distressed category. Yeah. And

18:11

do you know kind of off

18:13

the top of your head to

18:15

sort of order of magnitude what

18:18

that represents in terms of total

18:20

loan debt for that category? Like

18:23

do we know the average borrowing

18:25

or lender or lender or borrower?

18:27

Is there the average amount outstanding

18:30

as highest for the baby boomers?

18:32

people or people who fall into

18:35

the age group of 51 years

18:37

old or above. And I believe

18:39

it's around $34,000 per person. That

18:42

would be the average amount. But

18:44

I think the key impact is

18:46

not the direct loan that's going

18:49

to be in delinquency tied to

18:51

that person. It's more of the

18:54

wider impact of credit quality in

18:56

the economy. credit score is used

18:58

in underwriting loans for a lot

19:01

of asset classes. So mortgages, autos.

19:03

Right. So if you are a

19:06

credit risk manager for any of

19:08

these and you look at your

19:10

credit quality loan and you see

19:13

that the average credit score has

19:15

declined by 100 points, then you

19:18

realize that. Well, the loans that

19:20

you've written in the past couple

19:22

of years was not as high

19:25

quality as you thought it was.

19:27

How would you, how would that

19:30

affect your forward looking behavior? So

19:32

the implication, the reason why the

19:34

student loan credit score thing is

19:37

important, I would say a sleeper

19:39

shock in the economy, is because

19:42

number one, it covers about 10

19:44

millions of people, 10 million people,

19:46

and number two. credit score is

19:49

a kind of a transmission mechanism

19:51

of credit quality and you know

19:53

so far in the last three

19:56

years the dog that did not

19:58

bark on recession is credit spreads

20:01

and I think one key ingredient

20:03

of a credit crunch of credit

20:05

crunch is the uncertainty of your

20:08

credit risk. You know in the

20:10

past when you look at financial

20:13

crisis, There's a sizable literature that

20:15

look at how financial crisis could

20:17

sometimes come from the asset side

20:20

of things where when one asset

20:22

quality suddenly deteriorates then the portfolio

20:25

manager would have to pull back

20:27

on the other fire sale the

20:29

other asset right right to right

20:32

and that's often case the mechanism

20:34

of how something something that starts

20:37

the poor risk in one tiny

20:39

sector spreads to more right and

20:41

so far in the last four

20:44

years when you look at all

20:46

the balance sheet, household balance sheet,

20:49

corporate balance sheet data, you'd be

20:51

like, quality is pretty good. And

20:53

household debt to income ratio is

20:56

like the lowest, you know, in

20:58

many, many years. However, I think

21:00

that this credit score, massive credit

21:03

score drop actually tests that narrative.

21:05

which is that how much of

21:08

that good quality really is just

21:10

a suppression of the credit score

21:12

metric and because if I look

21:15

at this the time series of

21:17

the average credit score of outstanding

21:20

mortgage loans by income I mean

21:22

by credit score quintiles we are

21:24

currently about 50 to 80 points

21:27

lower than 2009 right but if

21:29

you think that the there's on

21:32

average a credit score inflation of

21:34

50 to 80 points. In fact,

21:36

the true average credit score is

21:39

actually closer to than 2009 level.

21:41

Then, you know, that's, I mean,

21:44

I just think that this is

21:46

an area that not many people

21:48

are concerned about and I think

21:51

it could potentially be the important

21:53

thing to look at it. But

21:55

certainly. I think the immediate impact

21:58

will see is that there will

22:00

be a pullback in demand after

22:03

this, you know, initial face one

22:05

of terror. because right now people

22:07

are front running the cars tariff

22:10

by buying cars. You know, there's

22:12

now a headline on the Bloomberg

22:15

terminal today that says GM Honda

22:17

sales climb as Trump tariff fear

22:19

spur US car buying. So we're

22:22

still in this honeymoon phase one

22:24

period. But then in the phase

22:27

two, people not only are not

22:29

only are these cars more expensive,

22:31

the credit scores decrease also led

22:34

to more people. will be seeing

22:36

higher financing, more stringent financing terms

22:39

when they go to buy cars.

22:41

And a lot of the people,

22:43

and when you look at the

22:46

demographics, the demand of cars by

22:48

demographics, most of the used car

22:51

buyers are between age 35 and

22:53

49, which happens to be the,

22:55

you know, the age group that

22:58

carry the most amount of student

23:00

loans. And the people who buy

23:02

who are who who to dominate

23:05

the new cars purchasing are people

23:07

who are above 51 years old.

23:10

And so I think that the

23:12

direct and the most rapid impact

23:14

of this credit score issue would

23:17

be how it affects auto's demand

23:19

post implementation of Paris. And another

23:22

issue is the housing sector. So,

23:24

you know, Our new Treasury Secretary

23:26

has said that the Trump administration

23:29

is making the 10-year yields decline

23:31

in 10-year yields as a metric

23:34

for what they're focused on because

23:36

they want to unfreeze the housing

23:38

market. But then if the mortgage

23:41

underwriters became more stringent in writing

23:43

these loans because of this credit

23:46

score, and this new generation of

23:48

home buyers, you know, Gen Z,

23:50

you know, the millennials, They're the

23:53

ones who are seeing this plunge

23:55

in the credit score and they

23:58

will have a hard time. I

24:48

was never really a runner. The way I see

24:51

running is a gift, especially when you have stage

24:53

four cancer. I'm Anne. I'm running the Boston Marathon

24:55

presented by Bank of America. I run for

24:57

Dana Farber Cancer Institute to give people like

24:59

me a chance to thrive in life,

25:01

even with cancer. Join Bank of America

25:04

in helping Anne's cause. Give if you

25:06

can at B ofa.com/support Anne. What would

25:08

you like the power to do? References

25:10

to Charitable Organizations. It's not endorsement by

25:12

Bank of America Corporation. Corporation. Coporation.

25:15

Copyright copyright copyright, copyright,

25:17

copyright. Copyright 2025. Spring

46:26

Fest and Ego days are here

46:28

at Lowe's. Right now, get a

46:30

free select Ego 56 volt battery

46:32

with purchase of a select trimmer,

46:35

blower, or a mower kit. Plus,

46:37

shop today for new and exclusive

46:39

items you need for your lawn.

46:41

So get ready for spring with

46:43

the latest and innovation from Ego,

46:45

the number one rated brand and

46:47

cordless outdoor power. Only at Lowe's.

46:49

We help. You save. Offer valet

46:51

through Fort's who selection varies by

46:53

location while supplies last. All

46:56

right, well, look, I wish we

46:58

had another three hours here, Anna.

47:00

So on the point of the

47:03

importance of the labor market, one

47:05

again, kudos last year, you guys,

47:07

I think, knocked the cover off

47:09

the ball in terms of your

47:11

predictions for the unemployment rate, I

47:14

think there was a. pretty long

47:16

string where Bloomberg Economics was the

47:18

firm that was number one incoming

47:20

closest on your forecasts. I don't

47:22

know if that records continued into

47:24

2025, but I certainly remember it

47:27

in 2024. The labor market really

47:29

is kind of one of the

47:31

last bulwarks between healthy economy and

47:33

recession. Sounds like you still believe

47:35

that the numbers there, there's some

47:37

great inflation going on with the...

47:40

the numbers that we're getting from

47:42

the BLS. In fact, we just

47:44

got the jolt's numbers this morning,

47:46

and they were not bad. We'll

47:48

put it that way. I think

47:51

they came in a little bit

47:53

lower than expected, but not totally,

47:55

and January's were revised upwards. Where

47:57

do you see unemployment headed? from

47:59

here. I mean, I got to

48:01

imagine, you may have, you got to,

48:04

I would think you would expect an

48:06

employment rate to go up later on

48:08

in the year, given that you're expecting

48:11

the slowdown. Yeah, so, so this

48:13

video will be published on

48:15

Thursday, right? And then tomorrow

48:17

we're going to be getting

48:19

the March on farm payrolls.

48:21

report. We are expecting the

48:23

March non-farm payrolls to add

48:25

about 200,000 jobs in March.

48:28

So that's stronger than most

48:30

forecaster and a Bloomberg survey.

48:32

And that's the reason why

48:34

is that we think that

48:36

March still experienced some rebound

48:38

related to weather bad weather

48:40

in January and February. In

48:42

the front running too, right? Yeah,

48:44

in the front running and the

48:46

trade and the logistics. sector, you

48:49

know, you look at truckload rejection

48:51

rates, which is a proxy for

48:53

demand for transportation, the rejection rate

48:56

has spiked in the first two

48:58

months of this year, right? So

49:00

that said, when we look at

49:03

the daily home-based data, which is

49:05

the primary input into our labor

49:07

market forecast, we see that around

49:10

the middle of March, you start

49:12

to see a very fast deceleration

49:14

in the pace of hiring. And

49:17

a pace that's faster than

49:19

the last three years. So

49:21

that's quite worrisome because

49:24

it could imply that as

49:26

we get into April, the

49:28

next jobs report we get.

49:30

So the one after this

49:32

week, I mean, so the

49:35

one we get in early

49:37

May, would actually show a

49:39

pretty weak payrolls gain. And

49:41

in terms of the unemployment

49:43

rate, I think the unemployment

49:45

rate will show even a

49:47

worse picture about the labor

49:50

market than non-farm payrolls. And

49:52

the reason why was that

49:54

many of these dose-related layoffs,

49:57

these workers are still being

49:59

paid. until closer to the

50:01

end of the year. So they

50:03

will continue to stay on the

50:06

non-farm payroll survey. So they're actually

50:08

counted as employed even though they're

50:10

no longer working. But in the

50:13

household survey, which produced the unemployment

50:15

rate, those people will report that

50:17

they are unemployed because they have

50:20

severed their relationship with the federal

50:22

government. So I think the unemployment

50:24

rate could be climbing faster than

50:27

what the non-farm payroll survey. slowdown

50:29

would suggest given this quirk in

50:31

the statistics. So I do, I

50:34

actually do think that there's a

50:36

good chance that the unemployment rate

50:38

to overshoot 4.7% by the end

50:41

of this year. Okay. All right. Thank

50:43

you for taking it there. So you

50:45

expect it to be 4.7% or above

50:48

by end of year. Yeah. Yeah. All

50:50

right. And I know you're

50:52

very busy, but hopefully we'll

50:54

have you back on at a

50:56

few points between now and

50:58

then, so you can make

51:00

some audible updates based upon the

51:03

unfolding data between now and then. I

51:05

don't want you to feel like

51:07

I'm going to hold it to that

51:09

number this early in 2025. Okay,

51:11

real quick, inflation. You

51:13

know, there's been a lot of

51:16

resurgence and concerns about inflation,

51:18

driven well, both by its

51:20

general stickiness, which may be

51:22

due more to base effects

51:24

than anything else. Love to hear

51:26

if you think that's the case or not.

51:28

But obviously tariffs have a

51:30

lot of people taking tariffs equals

51:33

inflation. As you said, we got

51:35

to go through this four phase process before

51:37

we really know the answer to that.

51:39

I would think, given again, your macro

51:42

outlook that you've laid out for us,

51:44

that you might take the under on

51:46

inflation. Because it seems like you

51:48

think the economy is going to slow

51:50

more, you know, the unemployment rate is

51:52

going to rise more. Is that true

51:54

or is it more nuanced than that?

51:57

I, everything with inflation is more

51:59

nuanced. So Adam, let me go

52:01

back to my phase one, two,

52:03

three, four for the terrorist implementation,

52:06

right? So where the inflation start

52:08

matter, being affected by tariffs would

52:10

be phase three, as I mentioned,

52:12

where the firms have finished running

52:15

down their build-up inventory. And now

52:17

they have to decide how much

52:19

more to build up. And because

52:21

now it's these new inventories are

52:24

more expensive, they also have to

52:26

decide, are they passing through? Are

52:28

they passing through? or will they

52:30

not pass through? And at

52:33

this point, if the macro

52:35

conditions is such that the

52:37

labor market is still holding

52:39

up, say if unemployment rate

52:41

when we get to September is

52:43

still only 4.3 or 4.4, I

52:45

would say that firms will try

52:47

to pass through these price. They

52:49

would try. I mean, there's no

52:52

harm in trying. I mean, the

52:54

harm would be that they will

52:56

realize that later on that the...

52:58

demand would fall by

53:00

more than they're passed through.

53:03

So this is back to

53:05

the concept of elastic, right?

53:08

A good if elastic, if

53:10

a firm increased prices by

53:13

10% and decrease in the

53:15

demand falls by more than

53:17

10%. So in that case,

53:19

their revenue fall, right? So

53:21

then a firm would try

53:24

to fine-tune to get to

53:26

the, you know, point where

53:28

it minimizes the total revenue

53:30

loss. And I think it's

53:32

kind of like a learning

53:34

process. A firm will try,

53:36

but will try to pass

53:38

through and if it turns out

53:40

that the demand at that stage

53:43

and the elasticity faced by the

53:45

firm is actually way more elastic.

53:47

So the fall in revenues in

53:49

demand is much larger than the

53:52

pass-through and they won't be able

53:54

to pass through as much because

53:56

they don't want that much of

53:58

a revenue fall. And so I

54:01

think this process of testing

54:03

to see how much they

54:06

can get away with, that's

54:08

the uncertain part. How long

54:10

does it take before they

54:13

realize that they have to

54:15

really cut prices or they

54:17

have to take the margin

54:20

hit? So in terms of

54:22

macromodels, it seems like there

54:24

will be a long

54:27

lag before that disinflationary...

54:29

impact would happen because in

54:32

order before you start to

54:34

when firms realize they really

54:36

cannot pass it through it

54:38

would be because the macro

54:41

conditions has deteriorated to a

54:43

point that's really bad and

54:45

that takes time because the

54:47

labor market does move very

54:50

slowly so I think that the

54:52

the point where it would be clear

54:54

that the clearer that the

54:56

net effect is disinflation would

54:59

be by middle of 2026,

55:01

given the lacks of all these

55:03

stuff. Okay. So, do I want to

55:05

put words in your mouth,

55:07

but do you think that

55:09

inflation then will kind of

55:11

be sticky sort of hovering

55:14

around where it is now

55:16

more or less until then

55:18

and then then we'll know

55:20

quickly whether it's game on

55:22

for inflation because they can't.

55:25

I'll tell you what we

55:27

did. So we did mark

55:29

up core PCE by a

55:31

couple tenths of a percentage

55:33

point for third quarter. But

55:35

for next year end of

55:37

2026, we do have it.

55:39

We do have it marked

55:41

down in the middle of

55:43

2026. Okay. All right. All

55:45

right. Well, look, thank you

55:47

for that. So Anna, just

55:50

fantastic. So well thought through.

55:52

so specific. This is an

55:54

interviewer's dream. Thank you. As

55:56

we wrap up here, so the

55:59

audience here are regular people,

56:01

you know, just trying to figure

56:03

out how to hopefully prudently grow

56:05

their wealth to provide for their

56:07

families. They're more nervous this year

56:10

than they were last year for

56:12

sure. Last year they were on

56:14

the second year of two great back

56:16

to back year in the markets.

56:18

This year very different. After

56:20

listening to your macro outlook

56:22

they might even be a little

56:25

bit more nervous. Any advice for

56:27

that person in terms of Yeah,

56:29

it sounds like you've I think

56:31

you've already delivered the message. Hey,

56:33

plan for an unhappy stock market

56:35

in the latter half of this year, because

56:37

as you said, sort of no matter which

56:40

way phase four goes, it's not going to

56:42

be great for the markets. Are there any

56:44

investing strategies that seem like

56:46

they would make a lot of sense

56:48

for the type of road that you

56:51

see ahead or any potential asset classes

56:53

that you think would perform particularly well

56:55

or particularly poorly? Yeah,

56:57

so I'm a macro economist,

57:00

so I really can't

57:02

give very specific investment

57:04

advice, but from a

57:06

macro point of view,

57:08

very broadly speaking about

57:11

asset classes, I would

57:13

try to not be

57:15

exposed as exposed to

57:17

the stock market for sure,

57:19

because, you know, as I

57:22

mentioned, that that either way in

57:24

either either pass, whether the firms

57:26

can pass through or the firms

57:29

cannot pass through, you're going to

57:31

see the stock market being hit

57:33

by this. And in fact, looking

57:35

at the trade policy uncertainty index,

57:38

how we're currently three times as

57:40

uncertain as the 2018, and thinking

57:42

about how the tariffs back in

57:45

2018 affected SMP 500 then, I

57:47

think 30% adjustment and a S&P

57:49

500 is not out of the

57:52

realm of possibility. So So if you

57:54

think about that tell risk, you

57:56

don't need to believe that that

57:59

will happen. just entertain

58:01

that possibility that

58:03

S&P 500 could fall

58:05

by 30%. And what would you

58:08

do? Well, you also certainly,

58:10

we cannot say for

58:13

sure that tariffs are

58:15

inflationary or disinflationary. So

58:17

I also would not take

58:20

a very definitive stance

58:22

on assets that either

58:24

expect high inflation or

58:26

inflation or. asset class

58:28

that's low on inflation.

58:30

I would actually focus

58:32

on assets that is

58:34

acyclical and agnostic on

58:36

the business cycle if such

58:38

asset classes exist and also

58:40

focus on the structural trends.

58:43

So what are the structural

58:45

trends? Even if we come

58:47

out of, you know, the

58:49

next four years, next three

58:51

years, what trends still exist?

58:53

I recently reread Bill Gross book,

58:56

a book that he wrote in

58:58

1990s, I think it's called How

59:00

to invest what everybody tells how

59:03

what everybody say is what everybody

59:05

say about investment is wrong or

59:07

something like that. It's a book

59:10

written by Bill Gross. And there

59:12

was a chapter where he said,

59:14

if he were to go to a remote

59:16

island. for many years and before

59:18

he go to the remote island

59:20

or after he come back for

59:23

the remote island what is the

59:25

one data point that would be

59:27

sufficient for him to think

59:30

about investment. He says demographics

59:33

and he's right about

59:35

that. Demographics is perfectly

59:38

predictable and and in terms

59:40

of the structural demand for

59:42

housing for stocks it is

59:44

a function of the prime

59:46

age group, right? By being

59:49

able to predict how

59:51

like the the abs and

59:53

flow of the size of

59:55

these prime age people between

59:58

age 30 to age 45

1:00:00

where they'd be spending a lot, because

1:00:02

these are the most indebted people. They

1:00:04

buy things, they buy houses, they start

1:00:06

a family, they take care of older

1:00:08

parents, and by following that, you could

1:00:10

have a pretty decent guess of what

1:00:13

demand on things generally would be looking

1:00:15

like in five to 10 years. The

1:00:17

second structural trend is AI adoption, right?

1:00:19

And I and the key word here

1:00:21

is not AI. The key word here

1:00:23

is adoption. Because I think there, you

1:00:26

know, one could say there have been,

1:00:28

you know, many people have said the,

1:00:30

the, the invidious stocks and various AI

1:00:32

chip stocks have been driven higher already

1:00:34

is out of reach for most people.

1:00:36

But the next phase of AI is

1:00:38

adopting AI. And I mentioned the demographics

1:00:41

trends, right there. We have, you know,

1:00:43

the, you know, the, baby boomers now

1:00:45

the last of baby boomers is likely

1:00:47

entering retirement this year and so you

1:00:49

have this very sizable a distribution of

1:00:51

people age 65 to 80 and they'll

1:00:53

be requiring more health care and AI

1:00:56

actually has become a pretty promising and

1:00:58

cost efficient way of servicing the health

1:01:00

care needs of the older population. And

1:01:02

so I think there are a lot

1:01:04

of very interesting structural changes related to

1:01:06

demographics and AI that that would be

1:01:08

insensitive to the business cycles that that

1:01:11

we are experiencing. I think people should

1:01:13

explore more of that and develop their

1:01:15

own opinion on what would be the

1:01:17

structural trend. All right. Five to ten

1:01:19

years. Fantastic and great point. And then

1:01:21

I. much less intelligently. I just sort

1:01:23

of think about it as try to

1:01:26

find a force of nature that no

1:01:28

matter what else is going on that

1:01:30

force of nature is going to overpower

1:01:32

it going forward and on. the aging

1:01:34

of the boomer demographic is one of

1:01:36

those forces of nature. All right, fantastic

1:01:39

Anna will look very quickly folks. If

1:01:41

you've enjoyed this conversation with Anna as

1:01:43

much as I have, please let her

1:01:45

know that by hitting the like button

1:01:47

and then clicking on the subscribe button

1:01:49

below as well as that little bell

1:01:51

icon right next to it. If you

1:01:54

would like some help from a financial

1:01:56

professional in terms of helping you figure

1:01:58

out how to navigate this. quite rocky

1:02:00

road that Anna thinks might be likely

1:02:02

to happen from here. If you don't

1:02:04

already have a good financial advisor already

1:02:06

advising you, then consider scheduling a free

1:02:09

consultation with one of the ones that

1:02:11

thoughtful money endorses. These are the firms

1:02:13

you see with me on this channel

1:02:15

weekend and week out. To schedule one

1:02:17

of those free consultations, just fill out

1:02:19

the short form at thoughtful money.com. The

1:02:21

firms will be in touch with you

1:02:24

right away. As a reminder, these are

1:02:26

totally free. There's no commitment to work

1:02:28

with these firms. There's no commitment to

1:02:30

work with these. While you're there at

1:02:32

thoughtful monday.com, don't forget to hit the

1:02:34

newsletter link at the top of the

1:02:36

site to sign up for our newsletter.

1:02:39

And I want to give another thanks

1:02:41

here to Anna. So for our macro

1:02:43

pass subscribers, the premium subscribers to our

1:02:45

sub-stack, we're going to have a recent

1:02:47

piece from Anna coming out later this

1:02:49

week. Basically, her team's reaction to the

1:02:51

liberation day data, once we know them

1:02:54

the day after we were sitting here

1:02:56

recording this video. So anyways, Anna, I

1:02:58

want to thank you for that too.

1:03:00

Thank you. Thank you for having me

1:03:02

again, Adam. Anna, it is always such

1:03:04

a pleasure. I'll be following you very

1:03:07

closely. I highly recommend everybody else to

1:03:09

us too. Where should they go to

1:03:11

follow you? So the first place is

1:03:13

on Twitter. So my handle is at

1:03:15

Anna Economist. And the second way is

1:03:17

if you have a Bloomberg terminal subscription,

1:03:19

our pieces, written pieces and thematic pieces

1:03:22

can be found on BECO. BECO. And

1:03:24

you can even see written pieces by

1:03:26

my colleagues who covered the economy of

1:03:28

China, geopolitics. Europe from all over the

1:03:30

all over the

1:03:32

world go. All right, and Anna, when

1:03:34

I edit this, I right. put

1:03:37

up when I edit

1:03:39

this, I will

1:03:41

put up the to those

1:03:43

on the URLs here

1:03:45

those on the screen

1:03:47

here so folks

1:03:49

know exactly where to

1:03:52

go. the Folks, the

1:03:54

links will be

1:03:56

in the description below

1:03:58

the video below the

1:04:00

Again, Anna, just such

1:04:02

a pleasure. a Thanks

1:04:04

so much. Looking

1:04:07

forward to have you

1:04:09

back on forward to

1:04:11

to give us an

1:04:13

update. Q3 to give us

1:04:15

right. Thank you, Adam.

1:04:17

Bye. Adam. Bye. All right.

1:04:20

And everyone else,

1:04:22

thanks so much for

1:04:24

watching. watching.